The job market has shifted into higher gear, drawing more people to work thanks to an energy shock and immigration restrictions, even as consumers bristle at an economy that is straining their wallets.
The rapid pace of hiring in recent months is a reversal of stagnation in 2025, a year of unpredictability and disruption that led companies to put their hiring plans on hold. And yet Americans are still in bad shape as wages fail to keep up with rising prices for gasoline and food.
Employers added 172,000 jobs in May, exceeding expectations, while the unemployment rate remained at 4.3 percent for the third straight month. In an upward revision over the past two months, the economy has added an average of 114,000 jobs per month this year, up from just 10,000 in 2025.
The back-to-back months of strong growth with no signs of increasing layoffs are evidence that companies have weathered a period of paralysis over the past year – a remnant of the Covid-19 pandemic hiring spree and wild policy shifts by the Trump administration.
“People are looking ahead, they see all the growth that’s going to come in a few years, and it makes them feel wealthier, so they spend. It makes them more optimistic, so they invest,” said James Egelhof, chief U.S. economist at financial services firm BNP Paribas. “We believe this will lead to an increase in labor demand.”
The tax breaks introduced in 2026 as well as the investment boom in artificial intelligence have created a feeling that it is finally time to pamper yourself, said Mr Egelhof.
Earlier this year, forecasts were much bleaker, largely because the White House’s campaign against legal and illegal immigration had pushed labor force growth to near zero. A Brookings Institution report found that increased immigration enforcement also hurt job creation in targeted cities.
But the Supreme Court’s decision to limit President Trump’s power to impose tariffs, which has led to billions of dollars in tariff refunds, has restored some confidence to the private sector. Departures from the federal government have largely stopped after 325,000 jobs disappeared in the first year of Mr. Trump’s second term. Even with a low decline in immigration, the labor force participation of workers between the ages of 25 and 54 remains high at 83.9 percent.
And the rise in gasoline prices due to the US and Israeli attacks on Iran does not appear to have had a negative impact on job creation. The Federal Reserve Bank of Boston released an analysis this week arguing that the American economy is much more resilient to rising energy prices than it was decades ago because many jobs now depend on oil and gas production.
“Because of the impact of the war, we cannot say that we are no longer vulnerable,” said Nancy Vanden Houten, senior U.S. economist at Oxford Economics. “But so far the labor market has more than held its own despite more than three months of conflict.”
Strong job creation is offset by extremely negative consumer sentiment. The University of Michigan’s long-running consumer survey reported the worst reading in its history in April, particularly for people in the bottom third of the income distribution. And in opinion polls, voters have turned against Trump’s handling of inflation and prices.
The jobs report released by the Labor Department on Friday contained a clue that may explain the pessimism: year-over-year growth in average hourly wages fell to 3.4 percent, a hair above March’s rate, which was the slowest since September 2021. With prices rising 3.8 percent last year, consumers are now losing ground and dipping deeper into their savings to pay for essentials.
Additionally, very few people quit their job to get another one, which is usually the easiest way to get a raise. It is still difficult for the unemployed to find a job; The share of unemployed Americans who have been looking for a job for more than 27 weeks is at its highest level since 2016.
Weaker wage increases could also be a result of the composition of employment growth in recent months. The leisure and hospitality sector posted the largest gain in May, with 70,000 job gains, possibly due in part to hiring ahead of expected tourist influxes for the FIFA World Cup, which begins this month. These jobs have the lowest hourly wages of any major industry.
The other big driver was local government, which added 55,000 jobs, and construction, which has been trending upward since last fall as data centers were built massively to serve the AI boom. Adam Schickling, an economist at Vanguard, believes the unseasonably warm spring may also have played a role in spurring hiring in areas that are dependent on weather changes.
“It’s essentially something that you ultimately pay back in one form or another. You hire people earlier, so you don’t hire that person later,” he said. “I think it’s still very early to point to a revival in the labor market.”
Nevertheless, employment gains have been relatively widespread, after several years of focus primarily on health care employment, driven by the needs of an aging population. Even staffing services increased this year after a three-year decline, a sign that employers are hiring some extra staff to handle more work.
This increase in demand is likely coming from the manufacturing sector, where a closely watched survey released last month found the industry has grown for five consecutive months. The sector lost 323,000 jobs in 2024 and 2025 but appears to have stabilized.
However, the improving outlook for manufacturers is unlikely to lead to an employment boom.
Bob Teska runs Dalen Products, a family-owned manufacturer of garden products in Knoxville, Tennessee. He brought more production back to the U.S. from China to reduce the cost of tariffs, but faced higher costs for plastic as the war in the Middle East affected shipping.
To increase production of the company’s owl decoys, designed to deter birds, Mr. Teska purchased a new blow molding machine and an automatic painting robot. He has between 40 and 50 employees depending on the season and believes he can stay at that level by training everyone for different jobs since fewer jobs require years of experience.
“I don’t want to reduce the number of employees. We want to become more efficient,” said Mr. Teska. “This blow molding machine replaces one that is 40 years old and can double our production of owls.”
There is evidence that a new form of automation – AI – could have an impact on employment in technology companies. Information sector job losses have accelerated, declining from a peak in 2022. But it’s possible that these laid-off workers have found a new home in the many white-collar sectors in the recovering professional and business services category.
“You’re hearing about a lot of layoffs in some companies, and they’re citing AI as a motivating factor,” said Christine Cooper, chief U.S. economist and managing director of real estate data firm CoStar. “Maybe they’ve just transitioned into advising companies that want to adopt AI.”
The shift in the job market may have even reached Hollywood’s creative professions, which have seen a generational decline in recent years following major studio spending cuts, major labor strikes and devastating wildfires.
Austen Marr was in the process of giving up his career as a set designer for animated children’s shows, which had gotten off to a good start after graduating from art school in 2019. As new shows dried up, so did his orders. He began teaching and selling vintage clothing to pay bills and student loans and thought about leaving Los Angeles.
Then, a few weeks ago, he got a contract with a YouTube show that runs for two and a half years – although not at his previous union wage and not with health insurance.
“It’s not an ideal situation, but just the fact that I have a job is a huge blessing,” said Mr. Marr, 30. “I look at what I’ve been through in animation and what my colleagues have been through, and I ask myself, ‘Man, is this really enough to make a life out of?'” I doubt it.”